Taxpayers can't bear costs of recovery after hurricanes hit

Epitomized most acutely by the ravages of Harvey, Irma and Maria, the current hurricane season has already visited devastation on countless American citizens and their Caribbean neighbors, from the U.S. Virgin Islands and Puerto Rico, across the Florida peninsula, to coastal Texas, with a glancing blow to Louisiana, itself no stranger to meteorological calamity. Destroyed homes, displaced families and work disruptions will delay any return to normalcy. Indeed, in the aftermath of Hurricane Harvey’s landfall, Gov. Greg Abbott (R-Texas) warned, “There is going to be a new normal.”

In the wake of such disasters, the National Flood Insurance Program (NFIP) plays a key role. According to the Federal Emergency Management Agency’s (FEMA) website, the NFIP “aims to reduce the impact of flooding on private and public structures.” Of course, to be eligible for relief, beneficiaries need to have secured coverage well before any storm appears on the radar. In other words, NFIP behaves, at least in this respect, like any other insurance program: Buy it before it is needed, just in case it is ever needed.

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But most people rarely buy coverage. Texas is typical, as only about 20 percent of homeowners in the state with flood damage have insurance protection, according to a Consumer Federation of America estimate. Not that the program could honor claims for more homes anyway. Between 1978 and 2004, the NFIP “generally took in more in payments than it paid out in losses.” But two catastrophic storms, Hurricane Katrina in 2005 and Superstorm Sandy in 2012, wiped out the program’s premiums. According to a Washington Post report, “the cost of losses of Katrina and Sandy combined equals nearly half of all premiums paid from 1978 to 2016.”

A 2017 Government Accountability Office (GAO) report underscored the severity of the problem that NFIP “will not generate sufficient revenues to repay the billions of dollars borrowed from the Department of the Treasury… to cover claims from the 2005 and 2012 hurricanes or potential claims related to future catastrophic losses… Since the program offers rates that do not fully reflect the risk of flooding, NFIP’s overall rate-setting structure was not designed to be actuarially sound in the aggregate, nor was it intended to generate sufficient funds to fully cover all losses.”

The report found that aspects of the Homeowners Flood Insurance Affordability Act of 2014 were “intended to address affordability concerns for certain property owners, but may also increase NFIP’s long-term financial burden on taxpayers.” The NFIP has been on the GAO’s high-risk list since 2006. Authorization of the program, already $24.6 billion in debt and originally scheduled to expire on Sept. 30, has been extended until Dec. 8, as part of the budget deal that President Trump negotiated with Congress. But according to Rep. Tom MacArthur (R-N.J.), “It’s gonna run out of money probably in October.”

House Financial Services Committee Chairman Jeb Hensarling (R-Texas), whose committee has jurisdiction over the flood insurance program, visited Harvey victims in Houston and said, “Never again should we encourage people to continue living in harm’s way and put themselves and first responders at risk. It is important that all Americans who have been affected by these natural disasters receive assistance, but we must enact real reform, responsible reforms so as not to cause long-term damage in the future.”

Hensarling noted that for one family he visited, it was the third time in the last eight years their home has flooded. He observed, “We cannot keep rebuilding homes in the same fashion and in the same places and expect different results.” His point is well taken. American taxpayers are compassionate. However, it is unfair, if not immoral, to expect them to perpetually subsidize the rebuilding of homes in areas where catastrophes occur repeatedly.